VICTORIA – The B.C. government has released its books for the last fiscal year with a smaller-than-forecasted deficit, but the province’s auditor general maintains the finance minister has understated the number by half a billion dollars.

Finance Minister Kevin Falcon released the 2011-2012 public accounts Wednesday showing the deficit at $1.84 billion, with most of that cost a repayment to Ottawa for the harmonized sales tax transition.

“Through prudent fiscal management, British Columbia is on track to eliminate the deficit and return to a balanced budget by 2013-14,” Falcon said in a news release.

But Auditor General John Doyle disputed the financial report, saying the government did not follow accepted Canadian accounting principles that, if used, would boost the figure to more than $2.3 billion.

“There is room for substantial improvement,” Doyle said in a news release. “(The) government could have easily fixed the financial statements.”

The auditor’s major issue relates to how the government accounts for royalty credits earned by natural gas producers.

In an information bulletin that explains his rationale, Doyle said the government failed to set up a provision for the deep-well credits that are used to reduced the amount of royalties that the gas companies must pay to the province.

He finds that a $702 million liability has been left off the books.

The auditor used the example of Air Miles reward points given out by airlines to describe why the natural gas credits should be included in the deficit figure.

Air Miles are earned by customers as soon as they make a purchase. The airline then owes the points for redemption some time in the future.

In the same way, it may be unclear when natural gas production will begin, but the government can use historical trends to predict an estimate of when the credits will be used.

Doyle said that each well’s credit should be recorded as a liability and that amount is “easily determinable.”

The auditor found three other discrepancies in the financial reports — some of which were overstatements — ultimately adding up to Doyle’s conclusion the deficit is higher than Falcon has stated.

But the ministry disagreed with the auditor’s assessment.

It said Doyle’s bookkeeping opinions don’t reflect how accounting has been done in B.C. in the past or how other jurisdictions such as Alberta keep their records.

The province currently follows an approach set out by the Canadian Public Sector Accounting Board, which a spokesman said leaves room for interpretation. However, the ministry is expected to get guidance and more clarity from the board on certain accounting issues sometime in the next year or so.

Falcon said at a news conference he welcomed Doyle’s opinion.

“We have to listen very respectfully when he makes recommendations around things like royalties. . . but that view is entirely inconsistent with the practice right across North America,” he said.

“There would be no point in us radically making a big change in our accounting standards and then having to change it back.”

In the government’s financial forecast in February, the ministry expected the deficit to be $657 million higher at the fiscal year’s end.

NDP finance critic Bruce Ralston said the discrepancy between the way the provincial government and the auditor general chart the budget deficit needs to be resolved quickly .

“It’s not a question of taking a political position,” he said. ” I think the public has a right to know with some certainty what the deficit actually is, and it’s a real consequence if it’s a $500-million difference.”

The auditor said he has concerns about the provincial financial statements in 13 of the past 17 years, which reflects a “long-standing trend of shortcomings” in government transparency.

Doyle will release a report in August that more broadly describes the problems he sees with the province’s financial reporting.

In releasing the deficit figures, the ministry also noted the provincial economy grew 2.9 per cent in 2011. That sets it above the 2.6 per cent national average.

Total revenues also jumped by $1.05 billion, the result of stronger tax revenue owed to economic growth.

But the minister cautioned that despite better-than-expected numbers, the province “remains in a period of great economic uncertainty.”

Due to the posted deficit, each minister had ten per cent of their salary held back this year as stipulated by a provincial act that’s aimed at ensuring the government meets its financial goals.

Another ten per cent of their salary was forwarded because all ministers achieved their individual targets.